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Belmont Club

The Profiteer

February 9th, 2014 - 5:53 pm

One of the terms that eventually makes its appearance in a failing economy is “profiteer”. The further the Venezuelan economy fell the more Hugo Chavez and his successors engaged in fighting “profiteers”. The headlines fairly blare out. “Venezuelan army occupies white goods shops as punishment for ‘profiteering’” says the Guardian. “Venezuela soldiers shut shops accused of profiteering” bannered the BBC. “Venezuela guns for profiteers with price controls” says the latest.

Caracas – Venezuela decreed on Friday a new price-control law that sets limits on company profits and establishes prison terms for those found guilty of hoarding or overcharging, part of President Nicolas Maduro’s efforts to tame inflation.

Maduro, who was elected last year to succeed the late Hugo Chavez, blames a 56.2 percent jump in consumer prices last year on an “economic war” led by political adversaries, while critics call it evidence of the failure of Venezuela’s state-driven economic model.

Today we learn from the Washington Post that AOL chief executive Tim Armstrong reversed himself “after days of pressure on the company. Many employees were angered by a report by The Washington Post that retirement benefits were being changed.”  Readers will recall that Bloomberg reported a cut in the Huffington Post’s employee benefits due to Obamacare.  The Huffington Post itself denounced the cuts as due to Tim Anderson’s greed and selfishness.

Armstrong’s explanation, which partially linked the 401(k) changes to childbirth costs, was criticized as insensitive and unclear. “AOL CEO Tim Armstrong, who makes $12m a year, takes away retirement money from employees for cost of sick babies,” tweeted Guardian editor Heidi N. Moore to 45,000 followers. Armstrong made $12.1 million in 2012 — four times his 2011 salary, according to public filings. …

The change means employees who leave AOL before the yearly match won’t get that additional income — potentially losing out on hundreds or thousands of dollars they would have added to their retirement accounts otherwise. Current employees also won’t benefit from market gains that take place throughout the year.

AOL is not the first company to pare back its employee retirement account funding in this way. In 2012, IBM announced a similar move. At the time, benefits experts predicted more companies would begin to follow IBM’s lead. So far, AOL is the only major company known to have done so.

Other companies, though, have eliminated matching funds altogether. AOL offers matching contributions up to 3 percent of an employee’s salary.

The policy shift was first reported this week by a Washington Post reporter, who wrote that AOL was making 401(k)s “worse for everyone.”

The company had not responded to a request for comment on the policy change as of late Thursday afternoon.

Moreover to let the AOL cut benefits would have proved Obamacare bad even for its advocates. So they are doubtless relieved to see this profiteer get his comeuppance at the hands of public pressure. But he’s not the only one facing trouble for passing on the pain the system produces. The insurance companies are under pressure to offer wider networks than their policies stipulate. Megan McArdle writes:

However much good, sound policy sense narrow networks might make, they are political poison. Regulators and politicians are going to find it very hard to withstand the appeals of constituents who have been restricted to the bargain basement of our nation’s health-care system. I simply don’t think they’ll be able to stand it for very long. This is basically what happened to the managed-care revolution that held down cost growth in the mid-1990s — people in those plans complained bitterly, in their capacity as both voters and employees. A combination of legal and market pressure forced insurers to open up their networks and approve more treatments. And then costs started rising again. As people begin using their Obamacare policies and start running into restrictions, the same sort of pressure will begin to mount.

And indeed, it’s already started, according to the Wall Street Journal:

“Insurers are facing pressure from regulators and lawmakers about plans that offer limited choices of doctors and hospitals, a tactic the industry said is vital to keep down coverage prices in the new health law’s marketplaces.

“This week, federal regulators proposed a tougher review process for the doctors and hospitals in plans to be sold next year through, a shift that could force insurers to expand those networks.

“Meantime, regulators in states including Washington and New Hampshire are ramping up their own scrutiny, and lawmakers in Mississippi and Pennsylvania, among others, are weighing bills that could force plans to add more hospitals and doctors.”

Every progressive loves Obamacare it is just that they dislike what it does.

Obamacare is like one of those restaurants in which delectable and juicy meals are advertised on the signboard outside. Unfortunately the diner who actually enters the premises and samples the fare is presented with a meager plate of disgusting mystery food.  When the more burly customers complain to the manager he drags out the short order cook and with a great show forces him to dish out the special reserved cutlets and chops to the irate diners.  But as for the customers too timid or powerless to remonstrate, they must content themselves with the same slop as ever.

In the same manner, when “progressive” policies fail, rather than face the scandal, the solution is typically to enact exemptions to maintain appearances rather than fix the underlying problem.  A little spectacle helps: raid a few stores and ostentatiously give away the contents to the public, with the TV cameras rolling or pressure AOL to return to the status quo ante and — Victory! This creates a Potemkin system where the profiteers are always stealing the food from the bounty which should have been there — “if only Lenin knew”.

Eventually the exemptions become the rule and Potemkinism becomes general. Industry analyst Robert Lazewski notes that Washington is now mulling the possibility of reinstating all the policies that Obamacare canceled for at least 3 more years.  The health program is so great they are thinking of exempting everyone from it for a time. It will be Potemkin all the way down.

Rumors have been circulating in the marketplace all week that the administration was thinking of extending the individual health insurance policies that Obamacare was supposed to have cancelled for as much as three more years.

Those rumors have now come out into the open with Tom Murphy’s AP story that began running today.

That the administration might extend these polices shouldn’t come as a shock. My sense has always been that at least 80% of the pre-Obamacare policies would ultimately have to be canceled because of the administration’s stringent grandfathering rules that forced almost all of the old individual market into the new Obamacare risk pool.

But with the literal drop dead date for these old policies hitting by December 31, 2014, that would have meant those final cancellation letters would have had to go out about election day 2014. That would have meant that the administration was going to have to live through the cancelled policy nightmare all over again––but this time on election day.

The health insurance plans hate the idea of another three-year reprieve. They have been counting on the relatively healthy block of prior business pouring into the new Obamacare exchanges to help stabilize the rates as lots of previously uninsured and sicker people come flooding in. With enrollment of the previously uninsured running so badly thus far, getting this relatively healthier block in the new risk pool is all the more important. The administration’s now doing this wouldn’t just be changing the rules; it would be changing the whole game…

Would it be fair to make almost indefinite a two-tiered health insurance system with some people being able to keep their old policies but prevent others from getting them?

This might be one of those you can’t win for los’in moments for the administration. Stay on the cancellation track and make lots of people mad one more time on election-day or grant another three-year reprieve and make the people you forced to buy the new plan wonder why they can’t have the policy their neighbor across the street has.

The situation is that Obamacare is good for everybody in general, though it is bad for everyone in particular. For that reason the president, Congress and much of the Federal government have already exempted themselves from it and the Unions are working on being exempted as well. Not to be outdone, the Huffington Post has proved that they too can have the chops and cutlets made available from the special freezer.

But as for the rest … maybe we should have Robert Laszewski have the last word on the near-term future of Obamacare:

Is Obamacare, with its clearly liberal versus free market view of what an insurance market should look like, on its way to unraveling? As long as I have your attention, I will update you on a few other market happenings.

How many of the people who bought health insurance for January 1 have paid for their policies?

My review of carriers tells me the number of people who paid, and therefore whose enrollment was not cancelled as of January 1, lies somewhere between 70% and 85% depending on the carrier. The smaller plans are tending to have a better result and the larger plans the worse result. Perhaps because the smaller plans have had a better handle on the messy exchange enrollment just because they had fewer enrollments to deal with.

My informal survey can’t be too precise, but I can say with pretty good confidence that based upon the drop-outs so far, about 20% of the 3.1 million people the administration has said have enrolled through January are not going to stick. That means the real number is closer to about 2.5 million.

Some of this attrition is due to people not paying their bill because they decided not to buy after all. Some to people signing-up twice and just paying once–– can’t handle duplicate enrollments! Some of it may be due to people wanting coverage but they never got their invoice in all of the January administrative mess. Until the dust settles we really won’t know.

Last fall I said that I thought it would be late January or early February before would generally be fixed.

Boy, was I wrong. The to-do list still includes:

  • Problems with the government sending enrollment transactions to the carriers––the 834s––that are still having error rates much too high for high volume processing.
  • The inability of the government to do an automated enrollment reconciliation with the carriers––to be able to sort out who really is covered and who is not––because that system still hasn’t been built.
  • The inability of the government to pay carriers because that system hasn’t been built––carriers are sending estimated bills to the feds.
  • The inability of the government to add and delete people from the system for things like a newborn or a divorce because that system hasn’t been built yet.
  • The inability of the government to handle appeals when people think their eligibility or subsidy calculation is wrong because that system hasn’t been built yet.
  • The inability of the government to cancel people off of because they never built that functionality. As a result, I expect they will be reporting bloated enrollment numbers for some time.

At least two carriers have told me that because the government can’t cancel people off the system, it the person shows up next month they can’t reenroll on because the government can’t get the old enrollment off the system.

Then there is the question of how many people signing up on the Obamacare exchanges previously had health insurance? Asking different carriers yields different answers. Most often they only know if they had the person on their rolls before––maybe they were with another carrier.

The information I am getting is that anywhere from 50% to 80% of the enrollments are from people who either had their prior policy cancelled or had a policy before but chose to give it up because they could now get a subsidy that made the cost of coverage cheaper for them.

If it’s not working all we need to know is: there’s a lot of profiteers and wreckers out there.

The Profiteer

The Profiteer

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Top Rated Comments   
“The dilemma is not between automatic forces and planned action. It is between the democratic process of the market, in which every individual has his share, and the exclusive rule of a dictatorial body. Whatever people do in the market economy is the execution of their own plans. In this sense every human action means planning. What those calling themselves planners advocate is not the substitution of planned action for letting things go. It is the substitution of the planner’s own plan for the plans of his fellow-men. The planner is a potential dictator who wants to deprive all other people of the power to plan and act according to their own plans. He aims at one thing only: the exclusive absolute pre-eminence of his own plan.”

Ludwig von Mises, Socialism, Epilogue
9 weeks ago
9 weeks ago Link To Comment
I know Sue, she is a good woman, and they have no right to her.
9 weeks ago
9 weeks ago Link To Comment
The assumption that profiteers and wreckers are responsible for ALL the failures to successfully fulfill the PLAN [the plan be the closest thing to sacred that the Left can conceive] carries with it two inevitable sequalae:

1) There will be a vast reduction in the amount of whatever good or service is being regulated. If you were a shop-owner in Venezuela, would you stay in business if you had the opportunity to get out any way you could? If you are a company that is caught between the costs of both compliance and non-compliance of Obamacare, there is a significant chance that you will not be around after a while. If you are an insurer which has no idea of who is supposed to pay you how much and have functionally unlimited liability risk at government whim; eventually there will be fewer insurers. Which may be [and likely is the Left's intention]. But no matter what, there will be less, especially after the Almighty State takes its cut off the top.

2) As reality sets in, the excuses will be flying thick and fast. And inevitably, coercive measures will be imposed . At first, it will be a few as examples. As Mao said, "killing the chicken to scare the monkey". But eventually the monkey will have had enough, and the State will have to start killing monkeys. Which starts a death spiral.

While it is no longer a certainty in what remains of America, there still is a possibility that matters will not remain one-sided forever.

Subotai Bahadur
9 weeks ago
9 weeks ago Link To Comment
All Comments   (44)
All Comments   (44)
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I wonder about the impact of Obamacare in the overall insurance market.

For property insurance, losses are to some extent fungible. An Ariane fails and dumps $150M worth of commercial satellites in the ocean and everybody's car insurance goes up a bit.

And it just so happens that around here our property insurance took a big jump - as in more than doubling, last year. The cost was so ridiculous that I dropped all the hurricane coverage on my house. It was absurd; I would have been paying $2300 more for hurricane coverage that had a $20K deductible.

Obamacare is a big burden on the economy, not only in costs but in disincentives and opportunity lost impacts, and but I wonder how much its hitting the overall insurance market.

And BY THE WAY. If people not being "job locked" is such a great idea and provides "more freedom" by means of people not having to work on things they do not wish to - WHAT ABOUT the huge loss of freedom associated with Federal regulations? How many people would put the effort that they must each year into filling out all those tax forms if they did not have to? To say that they are freed from having to work at a specific job pales in comparison to the way in which we all are enslaved by the Feral Govt.

9 weeks ago
9 weeks ago Link To Comment
The opportunities for adverse selection in ALL aspects of ObamaCare are truly mind boggling. It's a giant game of musical chairs.
9 weeks ago
9 weeks ago Link To Comment
Yet another executive rewrite of 404Care, although this do-over concerns the employer mandate rather than the individual: [Teh Won's] latest lawless rewrite arrived on Monday as the White House decided to delay the law's employer mandate for another year and in some cases maybe forever. . . . Under the new Treasury rule, firms with 50 to 99 full-time workers are free from the mandate until 2016. And firms with 100 or more workers now also only need cover 70% of full-time workers in 2015 and 95% in 2016 and after, not the 100% specified in the law.

The new rule also relaxes the mandate for certain occupations and industries that were at particular risk for disruption, like volunteer firefighters, teachers, adjunct faculty members and seasonal employees. Oh, and the Treasury also notes that 'As these limited transition rules take effect, we will consider whether it is necessary to further extend any of them beyond 2015.' So the law may be suspended indefinitely if the White House feels like it. . . . [The Obama] Administration's cavalier notions about law enforcement are especially notable here for their bias for corporations over people. The White House has refused to suspend the individual insurance mandate, despite the harm caused to millions who are losing their previous coverage. Liberals say the law isn't harming jobs or economic growth, but everything this White House does screams the opposite."
9 weeks ago
9 weeks ago Link To Comment
Obama is lawless. The GOP is irrelevant to the country and history if they allow his unconstitutional behavior to stand unchallenged.
9 weeks ago
9 weeks ago Link To Comment
You're working night and day to build the necessary GOP supermajorities in both the House and Senate to enable them to challenge Obama, right Salty?

Or are you flaming the GOP because you think you're helpless to do anything about the Democrats who caused this mess? Feeling the Stockholm syndrome?
9 weeks ago
9 weeks ago Link To Comment
osusn said: Off topic: "A Winning Alternative to Obamacare"

The basic problem is that there IS NO SOLUTION to the underlying problem. It can be decently ignored but it cannot be "solved".

This "2017 plan" is certainly better than Obamacare, but it is no solution. I suggest that any Republican or alternative solution should INCLUDE CARE and not just insurance. Just as this 2017 plan has an arbitrary assigned risk category and funding, *my* plan has a big, fat pool of money used to compensate ER and clinics for any and all walk-in traffic. This will address one of the critical problems in California pre-Obamacare, which Obamacare pretends to address but doesn't, really.

I might also support a database of physicians and outcomes, with an eye to eliminating the bottom 10% of practitioners. I fear the average "quality" of medicine as practiced is bad, bad, bad. Far too many physicians bury their mistakes. The current system of malpractice litigation is a poor solution.

And finally a fair amount of any "solution" must come out of Big Pharma, it is absurd for the US to subsidize the world's consumption of prescription drugs, at least there should be upwards of $20b/year to reduce or rationalize there.
9 weeks ago
9 weeks ago Link To Comment
Draft Democrat voters into changing bedpans, laundering soiled hospital linens, etc. Oh yeah, and they work for free. There you go, reform that can work. Hope! Change!
9 weeks ago
9 weeks ago Link To Comment
Well, we differ in opinion significantly. Any government solution that included "care" and not just insurance is just socialized, government controlled medicine by another name. That's why I prefer private insurance to government insurance, government healthcare, or government controlled insurance or healthcare (a.k.a. "fascism", where government controls private enterprise through coercion, which is how the Nazi's controlled German industry in the 30's). Government controlled anything - fails.

Capitalism is an imperfect system, but it's better than any other. And as I said in my original post, the current system is actually private business burdened by 10,000 different laws and regulation, i.e. the farthest thing from capitalism, and with predictable results, i.e. a distorted marketplace with perverse incentives.

Agree with protecting US property rights, a.k.a. your Big Pharma point.

I'm somewhat in agreement on malpractice, but it's not quite as simple an issue on it's face. There is good law and bad law, and more bad law won't make for good law. Personal example: Father, age 71, life long pharmacist and medical practitioner ever since he was a Navy Corpsman in the Pacific during WWII at age 17. He had bladder cancer. A then revolutionary medical procedure was performed to remove his bladder and create a new one from his small intestine. Surgery went fine. Developed that he had a hernia about a day after initial surgery, so back he went a week later. Since his was "optional" surgery and it was a busy day at his Southern California hospital, he was left prepped and ready, in a hallway, for 12 hours. He had a condition that put him at risk for aspiration, which the medical staff knew about but did nothing preventative for him after 12 hours of IV drips. He aspirated on the operating table, for all intents and purposes, killing him, i.e. by ruining his lungs. He was on machines and comatose for over a month, and revived enough to understand what happened, and told me to see a malpractice lawyer.

The story goes longer, but the bottom line is he died, and I couldn't find a lawyer in California to take the case. The maximum payout per California malpractice law was $250,000 - no matter what the cause, and creditors were first in line in collecting. In this case, the primary creditors were the hospital that killed him, and the insurance company that exacerbated his condition by forcing him to move to an even worse hospital. No lawyer could realize either his fees nor the plaintiff's recovery due to California malpractice law. By the way, due to the influence a close relative, I did speak to the best lawyers in the business, so my facts are straight. The hospital immediately tried to collect on over $1 million in unreimbursed fees, which in my mind would have meant my father playing for his own death by cashing in his life's work, but fortunately he had a living trust which we were able to quickly liquidate.

The full story is much worse and how it reads above. My dad should have lived to see his grandkids play baseball, graduate high school and college, marry, etc.. However, because of his age let alone his cancer (which was entirely recoverable), even the maximum $250K payout would have been unlikely. As the lawyers explained it to me, the only time that a plantiff would receive the multi-$million payouts that seem to make the news would be if there were long term care considerations. In fact, I later found out that a year prior to my father's death, the same staff had made the same error for a lady in labor, she died, but her child survived, horribly handicapped. They killed her, but her child got $millions for future care. Same hospital, same staff, same malpractice, with few consequences.

So, while I agree about controlling superfluous malpractice claims brought by the proverbial ambulance chasing attorneys, ensuring plantiff's rights is important too.
9 weeks ago
9 weeks ago Link To Comment
Off topic: "A Winning Alternative to Obamacare"

They're definitely going the right direction. However, they also generalize over huge gaps, like preventing "repricing" when someone switches policies, establishing two arbitrary periods when someone can "buy in" without restrictions (i.e. at birth and age 18), and allowing people to switch between employer based and individual plans without repricing or being denied coverage. Also the funding level for a national risk pool for people with prior conditions appears arbitrary.

Nearly EVERY problem with the U.S. health care system is based on market distortions caused by government intervention, combined with government favored 3rd party payer plans. The first employer-funded medical insurance was a response to WWII era wage and price controls. Later market distortions were a result of the LBJ "Great Society" ERA medicare/medicaid insurance which effectively set a price base for most services and products. Other types of insurance don't require the same level of government intervention, why so for medical insurance?

The key to any solution will be to strip health care and medical insurance back to basics. End medicare/medicaid systems and employer tax deductability, allowing only individual tax deductions, tax credits, or state subsidized tax credits for those in need (i.e. get the Federal bureaucracy and SPECIFICALLY the IRS out of the health care business altogether). Just end MOST health insurance regulation. Establish a basic national standard of "catastrophic coverage" combined with a "forever HSA", one that a person can have and use or possess like an IRA for medical coverage their entire lives, and their heirs can inherit after their deaths. Everyone including seniors procures their own insurance and is the first person accountable for it's cost (nothing "free"), albeit with tax credits or other subsidies.

The bottom line is getting back to where medical bills are mostly paid or at least controlled by "1st party payer" rather than "3rd party payer". Now, if individuals want to band together into groups or buy HMO/PPO style policies or insurance companies want to offer "premium level insurance" at higher prices, let the market flourish.

With the level of "basic medical insurance" catastrophic coverage both low and universal, it should be easier to ensure portability and protection against prior conditions.

The medical market place, in response, will take on a capitalist nature once again, where lower prices and better services matter to the providers as much as the consumers.

We have a heck of a lot of brain power here. I would think that the Belmont Club regulars here could develop a better proposal than anything the progressives, conservatives, and neo-conservatives have done thus far. The key thing to examine, re-examine, and then review again is (a) "why is government involved in .." each activiity, (b) "how do we empower the individual", and (c) "how can health insurance and medicine in general be empowered capitalist principles versus existing socialist policies". Question every assumption, every step of the way.

What do you say, Richard, and the rest? Do we want to come out of the shadows, as did Leo Linbeck III, and take on this project via online meeting, producing a credible white paper on a better Obamacare replacement, like the neo-con's at Weekly Standard just did?

The effort might be beyond us (i.e. I still work for a living), but then again, it's something might be worth the effort.

9 weeks ago
9 weeks ago Link To Comment
"With the level of "basic medical insurance" catastrophic coverage both low and universal, it should be easier to ensure portability and protection against prior conditions."

A little more clarification on this:

For example, a person who loses his job would no longer automatically loses his health insurance. The base catastrophic premiums should be lower (e.g. $300 a month), enabling him or her to continue to own and be accountable for his own insurance. Any national subsidy program would be targeted at premium increases over (a lower) base, rather than at actual costs. Keep the individual accountable.
9 weeks ago
9 weeks ago Link To Comment
2009 Daily Mail report shows Nazis were planning economic empire for Germany after the war was clearly lost

Our dear Marie Claude was right.
9 weeks ago
9 weeks ago Link To Comment
I don't know. This reads a lot more like a cold war style Communist disinformation campaign than as actual history. I'm highly skeptical of any historical revisionism.
9 weeks ago
9 weeks ago Link To Comment
Medical insurance and life insurance are different beasts. Life insurance is the simplest. A given policy payout is absolutely know and subject to actuarial reality, well predicted.

Medical insurance is really an expense leveling scheme, much like the cost averaging I use with my natural gas and electric suppliers. Government interference with the COST of medical service, by adding administrative, regulatory and unwanted coverage, only adds to cost.

Arithmetic will win.
9 weeks ago
9 weeks ago Link To Comment
Women don't do math.

But they now vote.

Deal with it.
9 weeks ago
9 weeks ago Link To Comment
Socialism promises a greater society by treating its citizens worse.
9 weeks ago
9 weeks ago Link To Comment
Old joke from the former Soviet Union:

The rumor started that the government was going to distribute fresh oranges at the train station and thousands lined up to get them. First the official said, "The oranges will be here soon but they will not be given to the Jews"; so the Jews went home. Then an hour later the official said, "No oranges will be given to Ukranians or Poles;" so they went home. Then another hour later, "No oranges will be given to non-party members;" so they went home. Finally he announced, "There is a shortage of oranges and we will not be giving them to anyone." At that point one communist said to another, "Those Jews get all the benefits!"

(For those unfamiliar with this kind of humor -- the Jews, by being the most discriminated against, were sent home first and therefore were spared the futile wait.)
9 weeks ago
9 weeks ago Link To Comment
Then there was the Soviet citizen who finally received approval of his application to buy a car. When he went to the ministry to fill out forms and pay upfront the full cost of the car, he was told that delivery would be in 3 years on Wed., Feb. 19th. The citizen then requested that the delivery date be changed to Thursday. The astonished bureaucrat asked what difference it made 3 years from now if the car was delivered on Wed. or Thurs. The citizen replied, "I've got the plumber coming on Wednesday."
9 weeks ago
9 weeks ago Link To Comment
Here's another I heard from a Russian friend back in '91:

A Russian and his foreign friend were strolling along (just like us at the time) and the Russian pointed over at a group of people and said, ''Those people are Russian.''

The foreigner asked how he could tell.

''Bad shoes, bad teeth.'' (Both true, esp the teeth)
9 weeks ago
9 weeks ago Link To Comment
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